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Cash advance credit cards

Cash advance credit cards

You can use credit cards to withdraw cash, but this can mean paying expensive fees and a higher interest rate than usual. Plus, it’s not only taking out cash that credit card providers treat as a cash advance. Find out what you need to know about cash advances and credit cards.

Anelda Knoesen
From the Money team
3
minute read
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Posted 11 SEPTEMBER 2020

What is a credit card cash advance?

A cash advance allows you to withdraw cash on your credit card, up to a certain limit. The service is available with most credit cards, but you’ll need to pay the balance back with interest.

When you make purchases on your credit card, there is often a ‘grace period.’ This means that you only pay the interest on your outstanding balance when you receive your credit card statement. However, when you use it for a cash advance, you’ll typically start paying the interest straight away and at a higher rate.

What transactions are considered a cash advance?

Other transactions can be considered a cash advance, even if you don’t withdraw any cash. These can include:

  • Making a mortgage payment
  • Paying a utility bill
  • Buying travel money and travellers' cheques
  • Buying foreign currency
  • Buying gift vouchers
  • Betting or gambling (including lottery tickets and most transactions in a casino)
  • Making an electronic cash transfer (for example, transferring money from your credit card to a current account)

If you're considering making one of these transactions, it's worth checking with your credit card provider first to see how it will be treated to avoid paying expensive fees.

How can you withdraw cash on your credit card?

You can take out a cash advance on your credit card by:

  • Using your PIN at an ATM
  • With your ID at your provider’s branch
  • Getting cashback when you make a purchase in a shop

You can withdraw cash up to your cash advance limit, which may be lower than the credit limit you're given for purchases. Check what your limit is with your provider.

Once you've withdrawn the cash, try to pay off your credit card bill as quickly as possible – don’t wait for your next credit card statement if you can. Cash advances get charged a higher rate of interest, so pay it off as soon as you can to minimise the amount of interest you'll pay.

How much does a cash advance cost? 

Each time you make a cash withdrawal using your credit card, you’ll be charged interest on the amount you withdraw from the day you take it out until you pay off the balance. This is known as the daily fee. You’ll also typically have to pay a cash advance fee, which may be a fixed fee or a percentage of the amount you’ve withdrawn. If you’re withdrawing cash abroad, then you could face additional charges.

Does withdrawing cash from a credit card affect my credit rating? 

Yes, withdrawing cash using a credit card does leave a record on your credit file and can therefore impact your credit score. This is simply because a cash advance acts as a form of borrowing, and signals to the banks and lenders that you don’t have enough in your account to withdraw the required funds.

What should I consider when taking out a cash advance?

There are several important things to consider when taking out a cash advance:

  • The interest rate – because a cash advance charges a daily interest rate, even small differences can make an impact over the course of the borrowing. Be fully aware of the amount you’ll be charged each day, and consider the total cost of the withdrawal once you’ve paid it back. It’s important that you have a good idea of when that will be.
  • Additional charges – this includes a generic cash advance fee, which is typically a percentage of the amount you’re looking to withdraw. Make sure that you check for any minimum charges, as while you may be withdrawing a small amount, there may be a minimum charge which would exceed the percentage amount you were expecting. Don’t be caught out.
  • Withdrawal limits – this can be both the amount that you’re able to withdraw, as well as the number of withdrawals you’re allowed to make. Ideally, you should be withdrawing only what’s entirely necessary, but make sure you get enough to cover your expenses, so that you’re not needing to make another withdrawal, which will incur further charges.
  • Your total credit limit – while there may be a limit on your withdrawal amount, don’t ignore your total credit limit either. This refers to the amount you can use on your credit card. Cash withdrawals will contribute to this limit, so ensure you have enough left to manage any other payments you may need to use it for. You can find your credit limit on your most recent credit card statement.
  • The impact to your credit score – a cash advance will leave a mark on your credit file, which may then affect your credit score. If your credit score is impacted negatively, then it may affect your ability to borrow and receive credit in future.

So, should I take out a cash advance?

If you can avoid withdrawing cash using a credit card, it’s probably best to do so. Withdrawing cash this way is arguably the most expensive way of doing so. You’ll be charged daily interest on the amount you withdraw, until you’ve repaid the balance, and you’ll likely be charged an additional fee based on the amount that you’re withdrawing. This means that, the more you withdraw, the more it’s going to cost you. There’s also the fact that it’ll leave a record on your credit file, as well as potentially impacting your credit score, which may affect your ability to borrow in future. 
 
It depends on your personal circumstances. If you require the cash quickly, and have no other means to access it, then a cash advance may be your best option. However, it’s important that you understand the implications of withdrawing cash this way, and aim to repay the borrowed amount as soon as possible, to avoid interest payments building up and the situation worsening. 

Can I withdraw cash abroad? 

You can withdraw cash on your credit card abroad but there will be a foreign usage fee, in addition to the cash advance and interest fees. This could be anything from 2.50% to 2.99% of the amount you withdraw.  If you withdraw in sterling rather than the local currency, you’ll also face a dynamic currency conversion (DCC) fee, which is almost always more expensive than your credit card provider’s currency conversion fee.

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